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The Worst Large Cap Stocks In March 2010
Energy stocks dominated the list of worst-performing large capitalization stocks in the Standard & Poor's 500 Index in March 2010, as investors trashed companies leveraged to natural gas.
Chesapeake Energy (NYSE: CHK), Devon Energy (NYSE: DVN) and National Oilwell Varco (NYSE: NOV) were three of the worst-performing stocks during the month, down 11%, 7% and 7%, respectively.
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Natural Gas Fundamentals
Over the last month or so, investors have started to become concerned with the fundamental situation in the natural gas markets. Natural gas inventories are higher than historical averages, with the latest report indicating that working gas in storage totaled 1,638 billions of cubic feet (Bcf) as of March 26. This was 12 Bcf above the same time last year and 160 Bcf higher than the five-year average of 1,478 Bcf.
While inventories are not all that bearish, there is a perception that supply will soon rapidly increase as the rig count has rebounded strongly over the last year, and many exploration and production companies have announced plans to boost drilling during 2010.
This Drilling Is Motivated By Many Factors
Some companies are drilling because they need to drill on certain areas before leases expire, and drilling converts the lease from a term lease to one held by production. Others are increasing drilling because they have set out ambitious production growth goals, and they are averse to disappointing investors who might dump the stock.
Chesapeake Energy is one of the leaders in developing unconventional resources in the United States with leading positions in virtually every shale play. Chesapeake is one of the few companies in the exploration and production industry willing to throttle back on drilling to help the fundamentals in natural gas. The company announced that it would reduce its number of operating rigs by 20, from 118 to 98.
Devon Energy is not as levered to natural gas as Chesapeake Energy, but it may be in the future, as the company is divesting its offshore and international assets and focusing on onshore plays in the U.S. and Canada.
National Oilwell Varco is an oil and gas capital equipment manufacturer that may simply have sold off in sympathy with the rest of the sector.
Regulatory Action
Genzyme Corp. (Nasdaq: GENZ) is a biotechnology company that was having a great month until the last week of March, when the company announced that it was the subject of an enforcement action by the Food and Drug Administration regarding one of its manufacturing facilities. Although Genzyme insisted that manufacturing would not be interrupted due to the action, investors decided to sell first and ask questions later, and the stock ended the month down 9%.
Dumping Stocks Leveraged To Natural Gas
Investors are a notoriously fickle and short-term group, and in March 2010, many dumped stocks leveraged to natural gas - the former darling sector that investors couldn't get enough of just a few months ago. Does this present an opportunity? (For more stock analysis, see America's Top Dividend-Paying Stock.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Digging Out Of Debt In 8 Steps
Natural Gas Fundamentals
Over the last month or so, investors have started to become concerned with the fundamental situation in the natural gas markets. Natural gas inventories are higher than historical averages, with the latest report indicating that working gas in storage totaled 1,638 billions of cubic feet (Bcf) as of March 26. This was 12 Bcf above the same time last year and 160 Bcf higher than the five-year average of 1,478 Bcf.
While inventories are not all that bearish, there is a perception that supply will soon rapidly increase as the rig count has rebounded strongly over the last year, and many exploration and production companies have announced plans to boost drilling during 2010.
This Drilling Is Motivated By Many Factors
Some companies are drilling because they need to drill on certain areas before leases expire, and drilling converts the lease from a term lease to one held by production. Others are increasing drilling because they have set out ambitious production growth goals, and they are averse to disappointing investors who might dump the stock.
Chesapeake Energy is one of the leaders in developing unconventional resources in the United States with leading positions in virtually every shale play. Chesapeake is one of the few companies in the exploration and production industry willing to throttle back on drilling to help the fundamentals in natural gas. The company announced that it would reduce its number of operating rigs by 20, from 118 to 98.
National Oilwell Varco is an oil and gas capital equipment manufacturer that may simply have sold off in sympathy with the rest of the sector.
Regulatory Action
Genzyme Corp. (Nasdaq: GENZ) is a biotechnology company that was having a great month until the last week of March, when the company announced that it was the subject of an enforcement action by the Food and Drug Administration regarding one of its manufacturing facilities. Although Genzyme insisted that manufacturing would not be interrupted due to the action, investors decided to sell first and ask questions later, and the stock ended the month down 9%.
Dumping Stocks Leveraged To Natural Gas
Investors are a notoriously fickle and short-term group, and in March 2010, many dumped stocks leveraged to natural gas - the former darling sector that investors couldn't get enough of just a few months ago. Does this present an opportunity? (For more stock analysis, see America's Top Dividend-Paying Stock.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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